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New immigrants and returning residents moving to Israel in 2026 will be offered a zero-percent income tax rate for the first two years of their residency, according to new tax reform plans announced on Thursday. Architects of the plan say it is designed to attract skilled professionals, investors, and entrepreneurs amid rising antisemitism abroad and shifting tax policies in Western countries like Britain. Under the reform – introduced as part of the 2026 state budget – immigrants and returning residents will pay no income tax in 2026 and 2027. Tax rates are then set to increase to up to 10 per cent a year in the three years to follow, up to an annual income cap of NIS 1 million (approximately $305,000). The plan states that returning residents must have been living abroad for at least ten consecutive years, meaning that Israelis who left the country during the Gaza War will not be eligible. The Finance Ministry said that the new benefits will be added to existing incentives for immigrants, including a 10-year tax exemption on taxes from foreign income. At a ceremony at the offices of Nefesh B’Nefesh, an organisation promoting immigration to Israel from North America, Finance Minister Bezalel Smotrich called the plan a “Zionist and economic revolution”. Immigration and Absorption Minister Ofir Sofer added: “In most countries, people leave during a war, but in Israel, people come to help. “Immigration is of Zionist, social, and economic importance to the State of Israel. “It strengthens our social fabric, brings high-quality human capital, and directly contributes to growth, innovation, and economic development.” Shraga Evers, CEO of Shivat Zion, commented that the 0 per cent income tax incentive “would be a game-changing financial opportunity for anyone considering aliyah". "To make the most of this opportunity, prospective Olim should look to move at the beginning of 2026 to maximise the full tax benefit…There has rarely been a better moment to take the leap and build your future in Israel; Aliyah has never looked more attractive.” Evers added: “For those in the UK, where the Labour government is expected to introduce further tax rises, this potential tax break could make a significant difference.” In a pre-budget speech on Tuesday morning, Rachel Reeves hinted at plans for a 2p rise in income tax, offset by a similar cut in employees’ national insurance. Now facing a multimillion-pound budget shortfall, Reeves seeks to shift the tax burden away from workers and onto groups like pensioners and landlords, who pay income tax but not national insurance. If Reeves follows through, she will be the first chancellor in 50 years to raise the basic level of income tax in the UK. The chancellor also confirmed that she has instructed the Office for Budget Responsibility (OBR) to begin a 10-week process based on her policies for the end of November. She said: “If we are to build the future of Britain together, we will all have to contribute to that effort. Each of us must do our bit for the security of our country and the brightness of its future.” The tax changes come at the same time as official figures released by the UK’s Department for Business and Trade revealed that the total trade in goods and services between Britain and Israel amounted to £6.2 billion last year – marking a 3.2 per cent rise from the year before. UK exports to Israel accounted for much of the growth, increasing by 10.5 per cent – driven in large part by growth in business and financial services exports. Meanwhile, figures released earlier this year showed that, in the 11 months from January to November 2024, 633 British Jews made aliyah, up 88 per cent on the 336 who made the transition in 2023. Vadim Blumin, head of the Jewish Agency’s UK delegation, said: “The fact that British Jews are coming to Israel in time of war is a big thing. As an Israeli, as a Jew, I’m very proud to serve the community here.”
